TN 272 
.F3 

Copy 1 


lletin No. 78 


Economic Series No. 16 


Eliain^(grg5ilj @2 Arniomiii 



f 

Valuation of Prospects 


BY 

George R. Fansett 




Bntered as second class matter Novem¬ 
ber 23, 1916, at the postofflce at Tucson, 
Arizona, under the Act of August 24, 
1912. Issued weekly. September to May. 


PUBLISHED BY THE 

University of Arizona 
Bureau of Mines 

Charles F. Willis, Director 

TUCSON, ARIZONA 


1917-18 





BIBLIOGRAPHY. 


Hoover, H. C.—Principles of Mining. 

Rickard, T. A.—^Thc Sampling and Estimation of Ore in a 
Herzig, C. S.—Mine Sampling and Valuing. 



tmp96 029695 




hr ^ i >. 0 L 2 ' iSfitA 


University of Arizona Bulletin 


Economic Series No. 16 February 10, 1918 


VALUATION OF PROSPECTS. 

BY George R. Fansett 

Tliere is no line of business in the world where greater difler- 
ences of opinion are found than in the calculation of a prospect. 
This is due not only to the lack of definite information on which 
the valuation can be based, but also to differences in the experiences 
and attitudes of the different ones making the valuation. 

According to H. C. Hoover, in his excellent work entitled “Prin¬ 
ciples of Mining,” the calculation of copper, gold, silver, tin, lead, 
zinc Lode Mines are dependent upon the following features: 

(a) The profit that can be won from the ore exposed. 

(b) The prospective profit to be derived from extensions of the 
ore beyond exposures. 

(c) The effect of a higher or lower price of the metal (except in 
gold mines). 

(d) The efficiency of the management during realization. 

The first of these may be termed the positive value and can be 
approximately determined by sampling or test treatment runs. The 
second and third may be termed the speculative values and are largely 
a matter of judgment, based on the geological evidence and the 
industrial outlook. The fourth is a question of development, equip¬ 
ment, and engineering method adapted to the prospects of the enter¬ 
prise, together with capable executive control of these works. 

Defined in the mining world, prospects are usually newly discov¬ 
ered properties or re-opened old mines where there is very little if 
any positive or very developed ore (ore exposed on all four sides in 
blocks of reasonable size) or very little if any of the so-called 
blocked out ore (ore exposed on three sides, all of these sides being 
wfithin a reasonable distance from each other.) Therefore a pros¬ 
pect usually has no tonnage of ore on which an estimate of assured 
profits can be based. For this reason subdivision (a) of Mr. 
Hoover’s table plays very little if any part in the valuation of a 
prospect, wffiich, therefore, is dependent on the speculative divisions 
(b) and (c) and the last subdivision (d) of his table. 

Since this is the case, and as no man can look very far into the 
ground, the only factors upon wffiich the valuation can be based arc 
the geological evidence and the industrial outlook presented. Here 
is where the experience and personal attitude of the different ones 






2 


Arizona State Bureau of Mines 


making the valuation come in. We find for the same prospect 
many valuations, ranging from that given by the optimistic pro^ 
pector or owner, who is positive that he has a million-dollar proposi¬ 
tion, to that of the prospective purchaser whose engineer has in¬ 
spected the property and has either found very little data on which 
to base an opinion, or who may believe in giving a very conservative 
opinion, in order to side-step his responsibility to his employer, or, as 
he may suppose, to protect his reputation. Both of these extremes 
are naturally undesirable, since either one will produce inaction, the 
result being that nothing is done with the property. If the owner 
were more experienced he could easily see that with the data avail¬ 
able on which to form an opinion, the property will not bring his 
price as a gamble, tO' say nothing of a fair business proposition. On 
the other hand, if the engineer had taken into consideration other 
factors available, his opinion may have been more favorable, the two 
parties to come to terms and perhaps permitting of the active devel¬ 
opment of a producing mine. 

The qualifications for a man in this line of work are very broad. 
He should have a thorough theoretical training as well as practical 
experience in mining engineering, and should also be familiar with 
geological, metallurgical and electrical engineering. In addition to 
this he should be a wide-awake business man, with good hard, com¬ 
mon sense, one who makes up his mind and forms definite opinions 
from the facts available, and who will allow no personal feeling or 
sentiment to bias him in his final judgment of the case. 

“Hunches’’ are commonly supposed to be the basis for most opin¬ 
ions on a prospect, and to the uninitiated it often seems that they are 
responsible for the purchase of certain properties which have turned 
out to be big paying propositions. Luck also is credited with a great 
deal of this success, but in most cases where the hunches or luck has 
turned out to so good advantage it is noticeable that the man who 
did the buying with these factors in his favor was usually a thor¬ 
oughly experienced man, with keen perception and good judgment, 
who knew the earmarks of a mine when he saw them. He is usually 
one who has spent years in and around mines, and had made good 
use of his time and eyes in observing the points which go to make up 
a mine. Likewise he is willing to back his judgment with all the 
money he has available, and for that reason may be considered of an 
adventurous nature. He usually has a working knowledge of mining 
geology, and is particularly well posted on outcrops and surface 
showings and what they have led to in other mines which have been 
developed. From this experience he is able to reason out what might 


Economic Series No. 16 


3 


naturally be expected if the prospect is opened up in depth, and for 
that reason is in a good position to handle the matter intelligently, 
and with assurance, where otherwise it would appear as an absolutely 
foolhardy undertaking. 

Since the surface showings of a deposit or the outcrop of a pros¬ 
pect play so important a part it seems advisable that a few suggea* 
tions along this line be mentioned. 

In practically all cases the vein or ore body is made up of different 
rocks and minerals than that of the country rock surrounding it. 
This being the case, it usually has a different color than the country 
rock, which difference of color can be noticed from a distance when 
not apparent at short range. Also the vegetation covering the dis¬ 
trict may have a slightly different shade where it grows on or close 
to the deposit from that growing on the country rock. 

One of the most common indications of outcrops is the different 
rate of weathering of the country rock and the rocks or minerals 
making up the outcrop, due to the difference in composition. For 
example, a thick, hard, slow-weathering quartz vein in contact- 
metamorphic deposits will appear after long weathering as small 
ridges or knobs above the general level of a softer, quicker weather¬ 
ing country rock, and can often be traced very easily along its surface. 

Where the minerals making up the deposit are more easily eroded 
than the country rock surrounding it, the reverse is true, and instead 
of a ridge, a depression or gully marks the deposit. 

Some of the geological factors which have more or less influence 
on the valuation are surface indications, such as the commonly known 
“iron cap,” iron-stained honeycombed vein matter or heavily iron- 
stained disintegrated gossan. These indicate that the vein matter 
before erosion contained iron as pyrites or in some other form, with 
possibly other valuable minerals; upon weathering these broke down, 
the gangue being carried away (chemically), stained the outcrop the 
characteristic iron rust color. Since most of the large mines of the 
world have been found under or as extensions of outcrops so colored, 
the prospectors look very favorably upon these factors as good indi¬ 
cations of mineral. 

Likewise if the iron-stained disintegrated is in contact-metamorphic 
deposit, it indicates that there may have been values of more easily 
leached metals present, such as copper, which were leached out as 
the outcrop weathered and eroded, carried down in solution and 
re-deposited at a lower level. The concentration of values accom¬ 
plished by this action produces what is commonly known as a zone of 
secondary enrichment, and this is the part of the deposit where the 


4 


Arizona State Bureau of Mines 


best values are found usually. This zone of secondar>' enrichment 
extends to the permanent water level, and the depth and values 
found in it depend not only upon the values which were present in 
the original ore body, but also on the efficiency of the action which 
accomplished the concentration of values. 

Another good indication for a copper deposit is a surface showing 
heavily stained with copper carbonate. This, like the above, may 
reasonably be assumed to indicate that the values in copper will im¬ 
prove with depth. The stain indicates that copper is present and was 
probably originally present in the form of sulphides which have 
w'eathered to carbonates or some other soluble form. These soluble 
copper salts are taken up in solution in the same manner as explained 
above. 

Below the permanent water level is the zone of unaltered primary 
sulphides, where the copper minerals exist as they were originally 
deposited, and therefore are usually of lower value than the enriched 
secondary sulphides of the deposit. For this reason the distance 
from the top of the secondary sulphides to the permanent water 
level is important. 

Phyllite schists, as found in and around Jerome and Humboldt, 
represent another form of outcrop below which copper in commercial 
quantities is found at depth. The same theory of deposition applies 
to these deposits as for the above mentioned deposits, except that in 
some of these there are found patches of primary sulphides above or 
mixed with the secondary sulphides. This is due to the fact that 
the solutions carrying the copper values down passed through the 
cracks of the schist and did not come in direct contact with the 
primary sulphides found in these patches. In this way they were 
not acted upon by the solutions, but remained in their original form. 
It wdll be seen that deposits of minerals such as copper, which are 
easily leached and precipitated out of solutions at a lower depth, 
thus being concentrated and forming a zone of secondary enrichment, 
are looked upon as better risks than deposits of slow-leaching min¬ 
erals, such as gold. The only concentration of values which takes 
place in a deposit of slow-leaching mineral is that due to the weath¬ 
ering and erosion of the surface and the consequent concentration of 
the mineral at or near the surface, due only to its specifiQ gravity. 
This concentration is produced by the removal by rain or wind of the 
eroded gangue minerals, leaving behind the valuable mineral which 
is too heavy to be transported. This is obviously a most inefficient 
method of concentration, the greater part of the valuable mineral 
usually being washed or blowm away along with the gangue. By 


Economic Series No. 16 


5 


this agency the enrichment, if any takes place, is only on the surface 
of the deposit, and any increase in the values below the surface will 
only be those originally deposited there. 

For these reasons very few engineers will advise the expenditure 
of much money in the development of properties other than copper 
or minerals of similar characteristics, when the openings are in 
mineral below commercial grade. When it is advised, in the case 
of slow-leaching minerals, it is because the engineer believes that 
lower down the values were originally more richly deposited. 

In the case of most copper properties, where the surface showings 
are favorable, it is very seldom that commercial mineral is developed 
until the zone of secondary enrichment has been reached, and this is 
always at some depth. For that reason copper properties with good 
surface indications, although no ore may be usually in sight, represent 
a good prospect. 

Large bodies of low-grade ore can be estimated much closer than 
those in which the mineral occurs in bunches or pockets of high grade, 
not only because they can be prospected satisfactorily and at a low 
cost with churn or diamond drills, but also because they can be 
expected to continue in value and quantity. 

Fissure deposits, perhaps more than those of any other character, 
offer considerable data for a fairly definite estimate of the depth to 
which they can be expected to go. It has been found in the opening 
up and development of these deposits that the depth to which they 
extend has some relation to the length of the deposit. This relation, 
as commonly found by engineers, is a ratio of about 1 to 1; in other 
words, if the deposit is 500 feet long, the vein may reasonably be 
expected to extend to a depth of about 500 feet. As far as has 
been determined the width of the ore body has no relation to the 
length or depth of the deposit. This suggestion, however, as well 
as any of the foregoing, cannot be considered a hard and fast rule, 
and for that reason should be used with discretion. 

The task of valuation of a property would be easy if all surface 
showings or outcrops which resemble those of a producing mine 
positively indicated the same mineral content, tonnage and other 
factors as in the producing mine which they resemble, but if excep¬ 
tions are considered as proving any rule, the exceptions to this rule 
would prove it oftener than the examples which are found agreeing 
with it. In other words, although the majority of producing mines 
do have outcrops or surface showings which are comparatively sim¬ 
ilar in their respective classes, it does not mean that a prospect having 
similar surface showings will necessarily develop into a producing 


6 


Arizona State Bureau of Mines 


mine. The common saying among miners that “all the rocks neces¬ 
sary to make a mine are present, but very little, if any, mineral is 
present,” is only too true, and it is this factor which makes it diffi¬ 
cult for any two men to form the same estimate of a prospect; the 
valuation may range from zero to a bonanza. 

This is particularly true with prospects which are located in 
regions where there has never been a producing mine developed, 
when nothing but the geological factors can be considered. If, on 
the other hand, there are mines which have produced or are produc¬ 
ing near at hand in that section the task of valuation is much sim¬ 
plified, providing the prospect lies in the same zone and has the 
same geological features as that of the producing mine. Much data 
from the developed mine can be used in helping to form an opinion 
of the prospect, and, as is commonly known, this fact has been 
responsible for the purchase and development of some of the largest 
mines of the world. 

The above represent some of the geological factors which may aid 
in forming an opinion of a prospect, and are of particular service to 
an experienced man who has learned them on the ground around 
producing mines, where the gradual changes in the ore bodies from 
the surface down are visible, permitting of a thorough inspection of 
them. When studied in this way, they are seldom forgotten and 
are a great aid to the engineer should he see an outcrop whose geo¬ 
logical features are similar to that of a producing mine with which 
he is acquainted. 

Since the valuation of a prospect usually depends upon the value 
of the ore at or near the surface more than upon any other factor, 
the first thing to be done after a careful inspection of all exposed 
parts of the deposit has been made is the taking of samples. The 
method used and the handling of the samples after they have been 
taken before they are assayed, as well as the method used for meas¬ 
uring the width of the vein, were explained in Bulletins 63 and 66 
of the Arizona State Bureau of Mines. 

The values obtained from the assays of these samples are used for 
making the calculations for the estimate, and for this reason each 
sample, when assayed, should be run either duplicate or triplicate, so 
as to eliminate any chances of error which might arise. 

At the time the samples are being taken it is good policy to take 
specimens of the rocks from the outcrop and from the surrounding 
rocks as well as the country rock. These are later used to make a 
study of the geology of the property, to determine the manner of ore 
deposition. 


Economic Series No. 16 


The deposit is also surveyed at this time, a map being made from 
the survey to be used for recording the locations and values obtained 
from the assays of the samples. 

If favorable results have been obtained from the assays, indicating 
that the prospect is worth further attention, it is then advisable to 
have complete chemical and metallurgical analyses run on the sam- 
|>les, to determine if any unexpected valuable minerals are present 
and if the ore is amenable to reduction or treatment by the common 
or known processes at a price which will allow the ore to be handled 
at a profit. This is very important, as often the values obtained 
from the ordinary assays may be high enough to indicate a bonanza, 
but when subjected to these tests the treatment may be found to be 
so difficult or expensive that at the time the tests are run the ore 
may be practically valueless. Likewise from these tests the kind of 
treatment, the machinery and equipment necessary for doing the 
work can be determined and a close estimate of their cost can be 
made. All of these matters have considerable bearing on the valua¬ 
tion and most certainly should be taken into consideration to prevent 
costly mistakes. 

The above represent some of the factors vvhich are considered to 
have a direct bearing upon the valuation of a prospect, but in the last 
few years Mr. Hoover’s table, section (c), has played a very import¬ 
ant part in the history of many prospects. This stated above is 
ant part in the history of many prospects. The valuation of many 
prospects of tungsten, molybdenum and practically all of the other 
useful minerals has greatly increased with the high prices of metals 
and there has been opened up and developed many producing mines 
which before the raise in prices w'ere considered of small value. In 
other words, the price of metals has a big influence on the value of 
jprospects, and for that reason engineers should keep posted on the 
latest prices of the metals and the conditions of the market. 

If, in the judgment of the party making the valuation, the prop¬ 
erty offers sufficiently favorable evidence for further investigation 
factors which are of a more certain and definite nature are then taken 
into consideration; the costs of the necessary equipment, machinery, 
buildings, tools, supplies and other necessities along this line can 
be fairly closely estimated. A close study of the water, fuel, timber, 
transportation, climatic and health conditions should be made, as 
well as an investigation of the government and local governmental 
regulations and the rigidity with which they are enforced. The 
costs of erecting the necessary machinery, timbering, mining, road 
building, the supply and kind of labor available for this v/ork, as 


8 


Arizona State Bureau of Mines 


well as the kind of management which is expected to handle the 
development, represent a few of the different matters which have to 
be taken into consideration, all of which have more or less bearing 
on the success of the enterprise, and which if not duly considered, 
may make a poor investment appear like a particularly good one. 

To handle this work satisfactorily a man should have a good 
theoretical training, supplemented by broad practical experience. He 
should have at his finger ends the data on all matters relating to the 
administration of mines that he may be able to fairly draw close and 
safe conclusions from evidence at hand. Without this as a founda¬ 
tion he may have the “hunch," which, if he follows it, may prove 
disastrous for the purchaser. 

From the above it can be seen that the valuation of a prospect is 
not an easy or a certain proposition. It must not be assumed, how¬ 
ever, from the foregoing remarks, that money put into a prospect is 
a poor investment, but, as in all other lines of business, one should 
either be personally experienced and back his own judgment or have 
in his employ experienced men upon whom he can depend and in 
whom he has absolute confidence both as to their integrity and 
ability. Otherwise he may be considered as taking a ganlbling 
chance, with the odds against him. 

When handled in the proper manner there is perhaps no line of 
business which offers and has actually delivered such large returns 
on the initial investments as in successfully developed prospects, and 
where the same amount of personal attention and experience has been 
used as is necessary in any other line of business, the failures have 
been comparatively few. As a proof of this statement it is only 
necessary to look over the list of the fortunes in this country and see 
which of them were originally founded on an investment in a pros¬ 
pect, and it will generally be noticed that the man who made the 
original investment which turned out so favorably was a personally 
experienced mining man or was directly connected with experienced 
mining men, making use of their knowledge and suggestions. This 
can also be proved by the fact that one of the main departments of 
most of the large mining corporations is devoted to the search and 
development of prospects, and thousands of dollars are spent by 
them in this work. Through it there have been developed a large 
number of producing mines whose values far exceed the cost spent 
in finding and developing them. 

It must also be said that an investment made in a proposition 
having the risk attached to it which the investment in many prospects 
has, the returns on the money should be expected to be more than 


Economic Series No. 16 


9 


ordinary interest. It should return to the investor a rate which is 
proportional to the risk which is assumed. In other words, if a 
man has a prospect, which in no way can be called a mine, owing 
to the lack of definite information from which any profits can be 
calculated, his proposition to the investor should be in proportion to 
the risk assumed by the investor, and the price as set must be low 
enough so that it will interest the investor from the purely business 
standpoint, and optimism should not be capitalized by the prospector 
in putting a valuation upon his property. 




LIBRARY OF CONGRESS 


0 029 787 830 ft 
























